The taxpayer acquired units in a Delaware limited partnership ("Crown Point"), whose other limited partner ("Altier") and whose general partner were Bank of America subsidiaries and which had elected to be classified as a corporation for purposes of the Code. In light of the right of the taxpayer to require Altier, which was the vendor of the units, to repurchase the units, the taxpayer's purchase of those units was characterized for purposes of the Code as a secured loan, so that the$400 million purchase price for the units was treated as a loan by the taxpayer to Altier, and the partnership distributions made by Crown Point to the taxpayer were treated as deductible interest by Altier. Crown Point had made a loan of $1.6 billion to another Bank of America subsidiary, and paid US corporate income tax on the interest income thereon. The taxpayer included its share of the Crown Point income (essentially this interest income) in computing its income for purposes of the Act, and claimed a foreign tax credit under s. 126(2) based on its share of the Crown Point US corporate tax for the year. The Minister's argued that the taxpayer was ineligible for a s. 126(2) foreign tax credit on the basis that the taxpayer did not itself pay any US income tax.
Webb J. found (at para. 28) that the word "paid" did not require a corresponding liability of the payor to make the payment. Furthermore (at para. 37):
Since the income of the Appellant is its share of the income of Crown Point (from the same sources of income), in determining whether the Appellant paid foreign taxes in relation to this income, the amount of foreign taxes paid by the Appellant should be its share of the foreign taxes paid by Crown Point in relation to that same income, even though Crown Point is a separate legal entity under the laws of Delaware. The Appellant would bear the economic burden of such taxes as such taxes would have to be deducted from the amount that could be distributed to the Appellant.